A Dematerialized or Demat account is a digital account. Investors use it to store their equities, mutual funds, bonds, and other securities in an electronic form. It is known as an electronic account where you can keep your securities safe and secure. Like a bank account, a demat account holds your investments electronically in a digital format. With a demat account, you eliminate the need for physical share certificates.
A demat account is opened by an investor with a Depository Participant (DP). The DP is like a middleman between the investor and the depository, which holds the shares or securities of an investor. The investor can buy and sell shares, stocks, and bonds quickly, safely, and securely from his demat account.
In India, the National Securities Depository Limited (NSDL) and Central Depository Services Limited (CSDL) are two independent and public depositories that operate on behalf of the Securities and Exchange Board of India (SEBI). All depository participants must register with either NSDL or CSDL.
The Indian government requires an individual to have a demat account to invest in equities and other securities. Here are the top advantages of holding a demat account.
Advantages of Demat Accounts
All securities are held electronically in a digital form in a demat account. Here are some benefits of opening a demat account:
- Eliminates Paperwork: A Demat account eliminates the need for physical share certificates, which are vulnerable to theft, damage, or loss. With a Demat account, all your securities can be purchased and stored in an electronic format.
- Safe and Secure: Demat account holders do not have to worry about fake share certificates or missing/lost certificates.
- Easy Access: Demat account holders can access their account easily from anywhere. They can check their account balance, track transactions, and even place orders from anywhere.
- Quick Settlement: Demat accounts have helped improve the speed and efficiency of trades. With regular shares, the settlement takes place via the transfer of physical shares, which can take time, sometimes even days. Whereas, with a Demat account, you can transfer the shares electronically, ensuring a quick settlement.
- Reduced Costs: With the elimination of paperwork and physical shares, dematerialization has significantly reduced the cost of share handling. This has meant reduced handling charges, and we can expect new products and services to evolve, enabling more cost savings.
How to Open a Demat Account?
Opening a demat account has become a simple process. You can easily open a Demat account online and start trading with ease. You need a trading account also for stock investing.
- Find a Depository Participant (DP) – a Stockbroker with Sebi Registration.
- Submit your Application Form and Required Documents.
- Sign an Agreement with DP – it outlines the legal relationship between you and DP.
- After the approval from DP and the depository, you will get a Beneficial Owner Identification Number (BOID), which identifies you as the account holder.
- Now, you can start investing from your demat account.
Demat accounts have revolutionized the way we invest in the Indian stock market. It has made investing safer, more accessible, and more efficient. An investor can open multiple demat accounts based on his needs, such as a joint account, a minor account, or a corporate account.
It is essential to choose a reliable and licensed DP to ensure the safety of your investments and trade efficiently. Congratulations on taking the first step to invest securely and safely.
Disclaimer: Investing in the stock market involves risks. You must ensure the risks and benefits before investing in stocks. It is important to assess the investment objectives, risk tolerance, investment horizon, and investment size & select a reliable and licensed DP & invest accordingly.